It’s tax time and that means most of your landlords would be gearing up to complete their annual tax return. One thing they may not be aware of however is that the ATO has announced a crackdown on investment property deductions.
According to the ATO, 2.2 million Australians claimed over $47 billion in tax deductions for the 2017/18 financial year, a significant portion of which came from rental property deductions. Given the substantial rise in claims for deductions from the previous year, the ATO announced that it would double the number of audits conducted on Australian taxpayers. Part of that includes issuing letters to a number of property investors with a request to explain the investment property deduction claims they made in their tax returns. As a property manager it shows professionalism and courtesy if you alert your landlords to this.
To help you, here are some questions landlords may ask and the responses.
What is the ATO looking for?
In terms of property investors, the ATO is cracking down on incorrect recording of rental income and expenses. According to the ATO this is particularly prevalent for jointly owned properties, which is commonly the case for ‘mum and dad’ investors. Let’s say a husband and wife jointly own an investment property and all the deductions for the property are made by the highest earner. This would raise suspicions with the ATO and warrant further investigation.
The ATO would also be looking for capital works claimed as repairs, deductions for repairs for which there is no evidence of completion and over-claimed interest.
Holiday home investments (like Airbnb) are another particular target this year. The ATO will be looking for deductions claimed for holiday homes that aren’t genuinely available for holiday letting and deductions claimed for periods when the owners are using the property for their own personal use.
What happens if issues are found by the ATO during an audit?
If an issue is found and it is deemed to be a genuine mistake on the part of the taxpayer, no penalties will be charged. However the taxpayer will need to adjust their ATO accounts and pay back any monies owing, which is likely.
Taxpayers found to have deliberately claimed more than they were entitled to, on the other hand, will be up for hefty penalties (up to 75% of the amounts claimed).
With the ATO targeting property investors in this year’s (and also likely future) audits, it’s never been more important for landlords to keep records of every expense relating to their investment property. This includes rental statements, invoices, bills, insurance certificates and all receipts for repairs and maintenance.
If you use Maintenance Manager, record keeping is so much easier for you and your landlords. That’s because Maintenance Manager gives landlords access anywhere any time to their own Landlord Portal free of charge. This is a central location for all matters relating to their investment property, including access to all statements and past maintenance jobs and invoices. Click here to view the landlord portal. If your office doesn’t have access to Maintenance Manager, contact us for an obligation free demonstration.
Last but not least, because everyone’s financial situation is different, all landlords should be encouraged to consult with a professional tax accountant before lodging their returns with the ATO.